Translation: Blockchain in Vernacular
RWA is one of the potential narratives for 2024 that we have not discussed in previous articles.
In this article, we will examine key aspects of this narrative, its implications for the 2024 bull run, and highlight a few RWA projects that could deliver big gains in the future.
1. What is RWA?
Real World Assets (RWA) are assets that exist in the real world and can be used in the cryptocurrency space through tokenization. Blockchain technology provides new opportunities to transfer the value of these assets to the blockchain, enabling convenient transactions and liquidity conversion. By combining the real world with Web3, a new foundation is created for decentralized finance, potentially greatly promoting the growth of this field.
In simple terms, RWA assets exist in the real world and can be used as a source of income, such as by selling, exchanging or leasing. Examples of RWAs include:
real estate
Stocks and Bonds
Commodity
artwork
Carbon Credits
In the tokenization process of these assets, value, both tangible and intangible, is converted into tokens, allowing any asset to gain high liquidity, be used as collateral, or simply gain fractional ownership through tokenization.
1) Brief process of asset tokenization
Detailed discussions between issuers, tokenization providers and investors
Agree on investment size and tokenization process
Token minting and distribution among investors (NFT or other tokens)
Secondary market operations (over-the-counter transactions, if applicable)
Investors earn income on their share of the tokenized assets
RWA has the potential to drive the development of DeFi with billions of dollars in investment. In addition, it enables the cryptocurrency community to enter the real world, effectively connecting cryptocurrency to our daily lives.
Why tokenize assets?
Asset tokenization can attract those who are not familiar with the DeFi ecosystem to participate. Real-world assets belong to the traditional financial (TradFi) field, which is full of rules, intermediaries and other factors. The goal of tokenization is to transfer these assets to the decentralized world and make them part of the growing industry.
For example, many parking lots could launch their own tokens, and by using these tokens, drivers could receive discounts or privileges.
Since Web3 has long implemented many technologies such as automated market makers (AMMs), liquidity pools, etc., making instant transactions possible, the RWA narrative will act as a bridge to combine all these advantages from Web3 with the real world.
2) How does asset tokenization work?
The main process of asset tokenization consists of three stages:
External legalization of assets
Asset legalization, also known as off-chain formalization, involves all processes related to compliance, legal, and administrative procedures. This helps confirm the existence of the asset that will be tied to the token.
Integration of digital and physical
This process involves using smart contracts to encode the financial and legal aspects of token-based transactions into the tokens themselves. Contracts are responsible for enforcing obligations, ensuring compliance, and handling property rights. This process is also known as information bridging, and at this stage, oracles that receive off-chain data come into play. At this stage, the token model is also chosen (ERC-20, ERC-721 for unique items, ERC-3643 for securities and regulatory requirements, ERC-4626 for income-generating assets, and ERC-1400 for security tokens).
Market dynamics and asset tokenization management
This phase involves issuing tokens to the market. It determines the dynamics of supply and demand, checks liquidity, and evaluates the tokens. Issuers also need to ensure that they are compliant with Anti-Money Laundering (AML) regulations and understand the customer identity verification (KYC) of the chosen listing platform - many common cryptocurrency projects have already applied verification data, and usually projects use verification as a criterion for distribution.
2. Current status of RWA
If we look at CoinGecko, the RWA industry is currently going through a short correction due to price action of major cryptocurrencies such as BTC, ETH, etc.
As of early May 2024, RWA has a market cap of approximately $6.5 billion:
However, taking a broader perspective, RWA assets like Ondo have shown significant growth so far this year:
By adding additional value to the blockchain, RWA also provides new sustainable investment opportunities. By using the RWA protocol, investors can access traditional financial markets without intermediaries and with lower overhead. For example, you can invest in tokenized US Treasuries on the network and receive a stable income with lower risk. Note that investing in US Treasuries is currently more profitable than the annualized percentage yield (APY) offered by the leading DeFi protocols:
The hottest RWA asset right now is tokenized Treasuries, but the RWA narrative is still very young and there will be many other tokenized assets that could reach a $10 trillion market cap!
Currently, all major RWA protocols are on the Ethereum network, but the RWA narrative still has a long way to go:
Details on recent investments by major funds including BlackRock and other market whales can be found here:
3. Main types of RWA tokens
1) Real Estate
These tokens are tied to land, residential or commercial real estate. They are often called security tokens because their value is determined by another underlying asset.
Tokenizing real estate offers a wide range of opportunities for investors. These tokens can be used to generate regular cash flow or passive income, such as lending to other individuals or using the property as collateral to generate income in the form of rent or royalties.
2) Art
These tokens are associated with art collections. They can also be considered utility tokens because they are primarily associated with goods or services. Several platforms, including Masterworks.io, are actively tokenizing valuable works by Banksy, Warhol, and other artists, providing individuals with the flexibility of fractional investments.
2) Products
This category is related to physical and tangible products, including gold, oil, agricultural products, etc. It also includes central bank digital currencies (CBDCs) backed by central bank reserves. There are many other directions related to the RWA field.
Now let’s look at the main platforms that support RWA assets.
4. Platforms supporting RWA assets
1）MakerDAO
MakerDAO was one of the first to integrate RWA into its platform. It worked with New Silver to ensure that real estate could be used to mine DAI tokens.
2）Goldfinch
Goldfinch allows businesses to access DeFi opportunities, such as crypto lending, without posting crypto collateral. The protocol takes a unique approach to verifying businesses through on-chain verification by a series of auditors.
3）Centrifuge
Centrifuge is one of the leading players in the RWA token market. Imagine being able to use cryptocurrencies to invest in assets such as invoices, home mortgages, or even houses. This is where Centrifuge comes in handy: the platform is similar to a bank (albeit more decentralized) and enables crypto loans using real-world assets.
4）Maple
Maple is a lending protocol focused on unsecured transactions. It involves multiple parties, including institutional borrowers, funding pool representatives, and lenders.
5）Ondo Finance
Ondo Finance is another important player in the RWA market (and, as shown in the previous chart, has the highest market capitalization among RWA assets).
Its goal is to bring institutional-grade real-world financial products into the DeFi ecosystem. Ondo has a variety of products, including OUSG (Short-Term U.S. Government Bond Fund), OHYG (High-Yield Corporate Bond Fund), etc. The company tokenizes these assets, marks them as fund tokens, and allows trading after completing the AML and KYC processes.
Therefore, asset tokenization provides a new perspective for interacting with traditional finance and asset classes in the cryptocurrency space.
Finally, let’s mention the top 6 projects in the RWA narrative, which are still in early stages but have support:
6) IYK
IYK is creating a decentralized platform for all authors to enable digital and physical experiments in the Web3 space by converting physical objects into NFT format.
IYK recently completed a $16.8 million funding round led by A16Z, with participation from 1kx and Collaboration+Currency.
7）Midas
Midas is an asset tokenization platform that provides access to institutional-grade assets through blockchain, specifically mTBILL securities offered 1:1 through ultra-liquid BlackRock Treasuries.
The project recently partnered with MorphoLabs to launch the first mTBILL/USDC lending market where you can earn additional $MORPHO tokens.
Midas also closed an $8.75 million seed round led by Framework Ventures, Blocktower Capital, and HV Capital.
8）Mogul
Mogul is a decentralized platform designed to invest in tokenized real estate with analyst backing from Goldman Sachs.
The project completed a round of financing of US$3.6 million, with participants including Draper Dragon, Blizzard Fund, etc.
9）Helix
Helix is an accredited trading platform that uses blockchain technology to provide access to out-of-network private loans in emerging markets. You can now fill out a form to gain early access to the platform.
The project has completed a $2 million seed round led by Saison Capital and Superscrypt.
Parcl
Parcl is a spot and perpetual exchange for trading synthetic real estate indices in all cities around the world.
The project has recently been in the spotlight as they announced that they have prepared snapshots for their first and second quarter distributions. The project recently conducted its distribution and has already released $PRCL tokens for providing USDC and NFT liquidity and for activities in Backpack, as mentioned by the CEO of AirdropHunter in an AMA.
The project has raised a total of $11.6 million, led by Fifth Wall and Archetype Ventures.
10) Avantis
Avantis is a decentralized derivatives exchange for trading synthetic assets. The project now operates the Avantis XP loyalty program where you can earn points by trading and providing liquidity. The project claims that no token is needed, but who knows how that actually works.
The project has completed a $4 million funding round led by Pantera Capital.
This project will most likely be redistributed in the future, so ignoring it is not recommended.
11) Dinar
Dinari is another platform for buying tokens of stablecoins backed by U.S. securities.
The project raised $10 million in two rounds of funding from investors including Balaji Srinivasan and Alchemy.
12）Ostium Labs
Ostium Labs is creating a decentralized exchange for trading RWA derivatives, initially involving commodities and currencies. Ostium aims to attract traditional commodity traders and cryptocurrency traders to join the platform. Users can now join the test network by filling out an application form on the website.
The project raised a total of $3.5 million from investors including Balaji Srinivasan and General Catalyst.
5 Conclusion
Therefore, the RWA narrative brings a bright future for anyone in the world of real finance and Web3, making people feel the new speed!
If you don’t want to miss out on distributions of major projects that may introduce tokenization in the future, join AirdropHunter and get airdrops with us!
DYOR (Do Your Own Research).
